How to pay off student loan debt.

You don’t need us to tell you how the cost of getting a college education has gone through the roof. According to the College Board's “Trends in College Pricing 2020” report, the average tuition and fees totaled $21,120 and $37,650 at public and private four-year institutions, respectively, for the 2020-21 academic year.¹

For many, that has meant they’ve had to borrow money to pay for the education they want. About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or from private lenders. And the debt numbers are staggering. 

• 42.9 million Americans owe an average of $36,510 each in federal loans. 
• 52.8% of federal student loan debt is in Stafford loans. 
• 35.5% of federal student loan debt is in direct consolidated loans.²

Saving for a college education: a great long-term investment.

Remember, even though costs continue to go up and many incur debt, a college education remains a great long-term investment in yourself. Some ways to save for college may include investing in a 529 college savings plan. 

The earnings gap between college graduates and those with less education continues to widen. Today, millennials with a high school diploma earn only 62 percent of what the typical college graduate earns. In 2019, the median income for recent graduates reached $44,000 a year for bachelor’s degree holders age 22–27.²

Student loans: a serious medium-term financial burden.

Whether you’re paying off student loans now, are thinking about taking out a loan for college, or are a parent getting ready to send your child to college, there are several avenues to explore to help mitigate the impact college debt has on meeting your long-term financial goals.

Extend the life of your loans.

If your repayment plan is less than 20 years and you are a recent graduate with tight finances, it may make sense to see if your lender(s) will extend repayment to 30 years, thus lowering your current out-of-pocket expenses.

Reduce your interest rates.

Almost every student loan lender (including the Department of Education) has an interest rate discount for people who set up direct deposit. Usually, it’s around 0.25%. Lenders prefer direct deposit because it increases the likelihood that you’ll make payments on time. While 0.25% may seem insignificant, over your loan’s life a 0.25% discount could knock off a significant chunk of the interest you’ll pay. 

Check with your lender to see if it has any other interest rate deductions. Some lenders may be willing to reduce your interest rate if you have a high credit score or a history of on-time payments.

Consolidate your student loans.

The federal government and some private lenders offer consolidation loans. In some cases, you can also reduce your interest rate with one of these consolidation loans.¹

See if you qualify for student loan forgiveness.

The 2021 stimulus package included a big win for student loan borrowers. Any student loan cancellation is now tax-free through December 31, 2025. So, if you get student loan cancellation from Congress or the president, you will not owe any income taxes on the amount of student loan forgiveness you receive.⁴

Use a home equity loan to pay off student loans.

If you own a home, since interest rates are now so low, it may be worth taking out an equity loan to pay off student loans, most of which are locked in at 6.8%. It’s important to calculate your total interest costs over the life of the new equity loan versus what you would pay for the student loan.

Employers may help pay off student loans.

There are several programs in place that help you pay back student loans. Some are through employers, while others are public-service oriented. The federal student loan repayment program permits agencies to repay federally insured student loans as a recruitment or retention incentive for candidates or current employees of the agency. 

The program implements 5 U.S. Code 5379, which authorizes agencies to set up their own student loan repayment programs to attract or retain highly qualified employees.⁵ There are loan repayment support programs available for nurses, teachers, and members of the military as well. And some private employers have programs. Ask your Human Resources representative.

Borrow from life insurance to pay off debt.

Should something happen to you; your family would be responsible for paying back your loans. To avoid your family having to bear such a burden in the future, you could consider a life insurance policy if you have an identifiable basic need for life insurance – like protecting your family and their lifestyle. A whole life insurance policy offers some options including ways to supplement what you save for college. It’s important to keep in mind taking a policy loan to help pay off student debt would reduce the available cash surrender value and death benefit of the policy. Policy loans will also involve interest payments. 

Working with a New York Life financial professional is a good way to start exploring different strategies to achieving your future goals while protecting those you love. 

This article is for informational purposes only. Neither New York Life Insurance Company nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions. 

¹“Trends in College Pricing,” College Board, 2020. CollegeBoard.com

² “How Does a College Degree Improve Graduates’ Employment and Earnings Potential?” Association of Public & Land Grant Universities. APLU.Org

³ Zack Friedman, “Student Loan Debt Statistics In 2021: A Record $1.7 Trillion,” Forbes, February 20, 2021. Forbes.com

⁴ Zack Friedman, “Here’s the Latest on Student Loan Forgiveness,” Forbes, May 7, 2021. Forbes.com

⁵ “Student Loan Repayment,” Office of Personnel Management. OPM.Gov